I believe it will be very! difficult to make a GAAP profit with the Model 3. Last year they lost 800 million with the Model S. They will have to go from making massive losses with a high margin luxury car to making profits with a low margin mass market car.
I believe Tesla will have to increase the price, i.e. catapulting the Model 3 out of the mass market price range, if they want to avoid making losses.
I understand that economies of scale will help some. But I am not sure massive reductions in battery prices, i.e. 50 percent, are likely. If anything cost reductions in batteries will be what the industry has achieved on average over the last 5 years.
Looking at the income statement
Tesla Motors Inc.
Revenue, currently 4.05 billion, minus costs of goods sold, 3.12 billion, will show a much smaller margin. Yes this figure might still be larger than todays one despite the smaller margin, if they sell enough cars. Cutting the purchasing price by half or more per car will make GAAP profits difficult to say the least, even if fixed costs as a percentage of revenue go much lower.
Depreciation and amortization expense, will likely increase with higher investments needed for production expansion. Currently standing 422 million.
R and D, will not increase much with increased production. Currently standing at 776 million
Other SG and E expense will increase with more superchargers and service centers needed.
At the end of the day a lot of things need to fall into place if you want to go from making a 800 million loss to profits while producing cars with a smaller margin.
One thing is for certain though. They need another significant financing round, via the selling of equity, to finance their expansion plans and the development of model 3.
